Friday, July 25, 2014Last Update: 6:55 AM PT

Judge Gets Tough on Church Plan Designation

SAN FRANCISCO (CN) - Finding that a health care conglomerate's pension plans are not a "church plan," a federal judge refused to exempt them from ERISA requirements. The dispute stems from a class action filed by former Dignity Health billing coordinator Starla Rollins in April 2013, claiming that Dignity Health's pension benefits plan was underfunded in violation of the Employee Retirement Income Security Act (ERISA). Dignity countered that its plan need not conform to ERISA standards because it is a church plan. Enacted in 1974, ERISA establishes minimum funding standards and disclosure obligations for employee benefit plans, among other requirements, to ensure that employees receive the benefits they are promised. ERISA specifically exempts "church plans" from its requirements. The term "church plan" means "a plan established and maintained by its employees by a church or a convention or association of churches." In advancing the action this past December, U.S. District Judge Thelton Henderson found that Dignity does not have statutory authority to establish its own plan and must follow ERISA regulations. After the court refused to let Dignity appeal that finding, Rollins sought a declaration that the plan was not exempt from ERISA regulations and that Dignity must bring it into compliance with ERISA. Dignity claimed that it needed to retain an expert and engage in more discovery, leading the court to narrow the scope of Rollins' motion to the question of whether the plan is exempt from ERISA. Rollins argued that there is no material dispute of fact that the plan is not exempt from ERISA since Catholic Healthcare West, Dignity's predecessor, which is not a church, established it. Dignity, in turn, said that various religious women's orders controlled CHW when the plan was established in 1989, and that those orders would be considered churches for the purposes of ERISA. It also argued that the statute of limitations bars Rollins' claim, and the sought-after relief would not be "equitable" since the Internal Revenue Service has consistently considered the plan exempt. Finding otherwise would be "inconsistent" and "grossly unfair" since it previously relied on IRS rulings that it was exempt, Dignity said. In granting Rollins partial summary judgment Tuesday, Henderson said Dignity "appears to confuse the meaning of the term equitable insofar as it distinguishes remedies available at law from remedies available in equity, and the meaning of the term as it relates to fairness to Dignity." "Declaratory relief is a form of equitable relief," he added. "Nothing in the ERISA statute creates an exemption from such relief where the result would be, in one parties' view, 'inequitable' or 'unfair,' and the court declines to create such an exception for Dignity here." The court also differentiated the case at hand from the precedent Dignity had cited. "Furthermore, if adhered to, Dignity's argument would lead to the perverse result where one erroneous IRS determination would have to be infinitely perpetuated for the sake of avoiding so-called 'gross[] unfair[ness]," Henderson wrote. "An erroneous IRS ruling, however, should not be permitted to trump a court's interpretation of a statute, and certainly should not be permitted to persist indefinitely simply by virtue of having come first." Internal CHW documents also demonstrate and in some cases state that CHW established the plan, not the women's religious groups, according to the ruling. Whether the religious orders controlled CHW is "immaterial because CHW was a separate corporation at the time it established the plan," Henderson added. Even if the groups exhibited some control over CHW, "that alone is insufficient to set aside CHW's separate identity," the decision states. Board members from the religious orders also had final approval over some matters but did not have approval rights over the establishment of the plan, the court said. Dignity also failed to show that the plan resulted from a 1990 merger, Henderson said, noting that Dignity's own supporting evidence "show[s] only that some sponsoring congregations decided to merge their plans to the already-established CHW Plan; they do not raise genuine dispute as to the actual establishment of the Plan." "To the extent Dignity attempts to re-litigate the court's interpretation of the ERISA statute by arguing that under its preferred interpretation of the statute, a plan established by CHW would be exempt, and alleging that the court's interpretation results in excessive government entanglement with religion - the law of the case is controlling," the decision continues. Rollins is represented by Bruce Rinaldi of Cohen, Milstein, Sellers & Toll in Washington, D.C. Barry Landsberg of Manatt, Phelps & Phillips in Los Angeles represents Dignity Health. Neither side replied immediately to a request for comment.